States, cities are bracing for another hit by feds

Their states are still recovering from the recession, and now the nation's governors are bracing, again, for cuts in federal aid.

They have been down this road before -- Congress has already missed several self-imposed deadlines to cut the deficit -- but many say they fear that this time the talks to avert the so-called fiscal cliff will actually lead to deep cuts.

So they want a say in the negotiations. "The main message is that it's important to remember that, on a lot of areas of governance, we're partners -- and that these issues can't be solved simply by cost-shifting to the states, because the states aren't really in a position to do all that," said Delaware Gov. Jack Markell, the chairman of the National Governors Association.

But the federal government has a long history of giving short shrift to the needs of states and cities -- by making cuts in federal aid that forced service cuts or tax increases at the local level, or by passing laws requiring localities to take expensive actions without giving them the money to do so.

So in recent days, more than a dozen mayors with the U.S. Conference of Mayors have gone to Washington to lobby lawmakers. And last Monday, Markell, a Democrat, joined several governors from both parties to discuss the issue on a conference call with Vice President Joe Biden.

The states, whose tax collections are still below the peak levels they reached in 2008, are in something of an unusual situation. That is because the automatic tax increases and spending cuts that are scheduled to begin in January are actually better for them in some respects than many of the alternate proposals being discussed in Washington.

Half of the cuts scheduled to take effect at the beginning of next year would be to military spending, which would affect states only indirectly. The scheduled cuts to domestic programs would leave Medicaid, the single biggest source of federal aid to states, untouched. And the planned federal tax increases would increase revenues in states, including Minnesota, whose tax codes are closely linked to the federal code.

But governors said no one was rooting for President Obama and Republicans in Congress to fail to reach a financial accord, in part because they fear that the resulting combination of spending cuts and tax increases could prompt another recession, which their states can ill afford.

Michigan Gov. Rick Snyder, a Republican, noted that the spending cuts and tax increases were intended to be so undesirable that they would spur opposing sides in Washington to overcome their antagonism and strike a deal on taxes and spending just to avoid them. The plan "was designed to be a terrible answer," Snyder said, "and I think they did a fairly effective job of doing that."

The automatic cuts would hurt states in several areas. A recent analysis by the Pew Center on the States found that about 18 percent of the federal grant dollars flowing to the states would be subject to across-the-board cuts, including money for education, public housing and nutrition programs for low-income women and children.

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Updated Jun. 23, 2014